Get Those Pipelines in Maine,or Suffer While the Others Boom!

In Booming Oilfield, Natural Gas Can Be Free

Permian Basin producers have had to give away their gas as pipeline bottlenecks worsen


Rebecca Elliott

American energy companies have spent billions of dollars in the past decade exploring for natural gas. But in parts of Texas and New Mexico, there is now so much of it that it is sometimes worthless. Some companies have even had to pay buyers to take it away.

Shale drillers in the Permian Basin are producing vast amounts of gas as a byproduct of prospecting for oil. But there aren’t enough pipelines to take all the gas to market, causing some of it to become landlocked, and sending local prices into free fall.

Gas prices in parts of the prolific region hovered near zero last month and some trades went negative, to as low as a negative 25 cents per million British thermal units, according to S&P Global Platts. The price-reporting agency said it was the first time on record that gas traded for less than zero at the Waha hub in West Texas. While prices have since ticked up, averaging $1.68 per million British thermal units for the four weeks through Dec. 21, that is still 40% of the $4.20 per million British thermal units that gas has fetched in that time at the main U.S. benchmark, Henry Hub in Louisiana.

Get Your Free Gas

Insufficient pipeline capacity has limited drillers' ability to move gas produced in the Permian Basin to market, reducing local prices and briefly sending them below zero. That means some companies had to pay for gas to be taken off their hands.

Natural-gas prices at the Waha trading

hub in West Texas

$4.00 per million British thermal units

Daily

price

range

3.50

3.00

2.50

2.00

1.50

1.00

0.50

Nov. 26, 2018

First time on record that

price fell below zero

0

-0.50

Nov.

Oct.

Dec.

Source: S&P Global Platts

Energy companies say last month’s zero pricing could be a sign of things to come in the Permian area next year, as more oil pipelines get built and companies ramping up production of crude, a far more lucrative product, get stuck with more gas that has nowhere to go. The U.S. Energy Information Administration estimates December gas production will top 12 billion cubic feet a day in the region, up about 34% from a year earlier.

“You’ll see things get worse and worse and worse as oil production grows and gas production grows alongside it,” said J.R. Weston, an analyst for Raymond James & Associates Inc.

Natural gas now helps generate about one-third of U.S. electricity, and it has become a valuable export commodity as ships take liquefied natural gas to Asia and Europe. For those fortunate enough to be near the Permian, getting it for nothing has been a boon.

Vistra Energy Corp. —an electricity company with a power plant in Odessa, Texas, in the heart of the Permian—got paid last month to take gas.

Permian Basin pipeline capacity

Crude oil

8

million barrels a day

6

4

2

PROJECTIONS

0

2018

’20

’19

Natural gas

billion cubic feet a day

25

20

15

10

5

PROJECTIONS

0

2018

’19

’20

Source: RBN Energy

“We were buying from intermediaries that I think were caught with gas, and they needed to get rid of it,” Vistra Chief Executive Curt Morgan said. “As long as we’re getting a discount for the gas, our plant is in the money.”

Apache Corp. , which is developing a new gas field in the Permian, was among the producers that had to sell gas for pennies on the dollar. The company said it had protected itself using financial hedges, which can act as a form of insurance when prices drop.

“That insulated us from the pricing dislocation that occurred around the beginning of December,” an Apache spokesman said.

One option for Permian operators with too much gas is to light it on fire, a practice known as flaring. Flaring levels reached record highs in the Permian last quarter, when companies burned an average of 407 million cubic feet a day, according to analysis of public data compiled by Rystad Energy, an energy consulting firm.

That has serious environmental consequences. The resulting greenhouse-gas emissions are equivalent to the daily exhaust emitted by about 2.7 million cars, according to estimates from the World Bank and Environmental Protection Agency.

Texas has thus far allowed companies to flare freely. As of the end of November, state regulators hadn't denied a single permit request in more than five years, records show. But flaring isn’t always an option. Companies might not have the needed equipment set up in areas affected by pipeline outages. They also might have to pay landowners royalty payments for the gas they burn. And flaring gas on the spot means drillers miss out on more valuable products that come out of the ground with it, such as ethane, propane and butane, which are often processed out later.

Technically, the Permian has more than enough pipeline capacity to accommodate all the gas being produced. But some of those pipes lead to Mexico, where demand hasn’t grown as quickly as anticipated.

At least one new pipeline is expected to begin operating late next year, which should help ease bottlenecks. Built by Kinder Morgan Inc., it will carry gas from the Permian to the refining-and-export complex near Corpus Christi, Texas.

But drillers have been more reluctant to commit to space on new natural-gas pipelines than they have on new oil pipelines. Pipeline companies generally want to secure such commitments before investing in new conduits.

“Producers are going to be first interested in solving their crude-oil needs,” said Jeff Jorgensen, who leads energy-infrastructure research at Brookfield Asset Management Inc., which manages about $330 billion. “Signing up for a natural-gas pipeline is like going to the gym and stretching. You’re there to lift weights.”

Write to Rebecca Elliott at rebecca.elliott@wsj.com

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Comment by Dan McKay on December 28, 2018 at 10:54am

The NRCM has lost all credibility it had with it's attack on this project, specifically it's accusations of increasing greenhouse gases by HQ. NRCM will always be coupled with wind and will wither with it.

Comment by Penny Gray on December 28, 2018 at 10:43am

Don't get TV up here in the "arctic" but saw ads while downstate being aired on TV against the Quebec Hydro transmission corridor, graphically depicting how the blasting, clearcutting, road building and huge towers would impact our environment and forever destroy the scenic nature of Maine.  Yet these same folks are willing and eager to commit the same atrocities in order to meet  Southern New England's renewables mandates by building Maine based wind installations.  Crazy strange thought process.

Comment by Dan McKay on December 28, 2018 at 7:03am

Better off to bring in Canadian hydro, hastily, retreat from ISO-NE and leave Massachusetts with it's wind power, solar power and disdain for natural gas expediting towards it's own energy grave, before we are dragged down with them. Canada has NG also.

Hannah Pingree on the Maine expedited wind law

Hannah Pingree - Director of Maine's Office of Innovation and the Future

"Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine."

https://pinetreewatch.org/wind-power-bandwagon-hits-bumps-in-the-road-3/

 

Maine as Third World Country:

CMP Transmission Rate Skyrockets 19.6% Due to Wind Power

 

Click here to read how the Maine ratepayer has been sold down the river by the Angus King cabal.

Maine Center For Public Interest Reporting – Three Part Series: A CRITICAL LOOK AT MAINE’S WIND ACT

******** IF LINKS BELOW DON'T WORK, GOOGLE THEM*********

(excerpts) From Part 1 – On Maine’s Wind Law “Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine if the law’s goals were met." . – Maine Center for Public Interest Reporting, August 2010 https://www.pinetreewatchdog.org/wind-power-bandwagon-hits-bumps-in-the-road-3/From Part 2 – On Wind and Oil Yet using wind energy doesn’t lower dependence on imported foreign oil. That’s because the majority of imported oil in Maine is used for heating and transportation. And switching our dependence from foreign oil to Maine-produced electricity isn’t likely to happen very soon, says Bartlett. “Right now, people can’t switch to electric cars and heating – if they did, we’d be in trouble.” So was one of the fundamental premises of the task force false, or at least misleading?" https://www.pinetreewatchdog.org/wind-swept-task-force-set-the-rules/From Part 3 – On Wind-Required New Transmission Lines Finally, the building of enormous, high-voltage transmission lines that the regional electricity system operator says are required to move substantial amounts of wind power to markets south of Maine was never even discussed by the task force – an omission that Mills said will come to haunt the state.“If you try to put 2,500 or 3,000 megawatts in northern or eastern Maine – oh, my god, try to build the transmission!” said Mills. “It’s not just the towers, it’s the lines – that’s when I begin to think that the goal is a little farfetched.” https://www.pinetreewatchdog.org/flaws-in-bill-like-skating-with-dull-skates/

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